UPDATE 1-Off-the-books job growth pushes down Brazil unemployment

Reuters Staff

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By Bruno Federowski

SAO PAULO, Aug 31 (Reuters) - Brazil’s unemployment rate fell more than expected in the three months through July, government data showed on Thursday, in the latest sign of an economic rebound from a yearslong recession.

Still, the recovery stemmed mainly from a spike in off-the-books employment, extending a trend that is likely to limit the inflationary pressure from a tighter labor market.

Brazil’s jobless rate fell to 12.8 percent, statistics agency IBGE said, down from 13.6 percent in the three months through April.

The country’s deepest recession in a century drove unemployment to a record high of 13.7 percent in the first quarter of 2017.

Economists had expected a 13 percent jobless rate through July, according to the median forecast in a Reuters poll. This was the fourth month in a row that unemployment undershot estimates.

The recent pickup in employment adds to a batch of stronger-than-expected retail sales and economic activity data that have led several forecasters to raise their 2017 growth outlook.

“Overall, the labor market stabilized earlier than expected, and the recent employment and real wage dynamics are encouraging,” Goldman Sachs economist Alberto Ramos wrote in a report.

The number of unemployed workers in Brazil fell to 13.3 million from 14.0 million, mainly because of a 4.6 percent increase in the number of “informal” workers. Many people are preparing food at home and selling it in the streets, IBGE economist Cimar Azevedo wrote.

Off-the-books workers avoid a heavy tax burden on their salaries, but they are not entitled to paid maternity leave and vacation, obligatory annual pay rises and other social security benefits.

Therefore the faster-than-expected labor market improvement is unlikely to add as much immediate pressure to inflation, which is hovering near 18-year lows. Wages discounted for inflation were nearly flat from both the previous quarter and the year-earlier period, IBGE said.

Mild inflation has allowed the central bank to cut interest rates to their lowest since 2013 as it tries to bolster a fragile recovery. The economy is expected to grow only 0.4 percent in 2017 after shrinking more than 3 percent in each of the past two years, according to a weekly central bank survey. (Reporting by Bruno Federowski; Editing by Lisa Von Ahn)